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High Court of Delhi
PRADEEP NANDRAJOG & PRATIBHA RANI, JJ.
Varuna Overseas P. Ltd. & Others
Versus
Al-Mustaneer Establishment & Others
RFA(OS) 70 & 87 of 1998
Decided On : 02-03-2012
LETTER OF CREDIT - TRANSFER - FRAUD - NEGLIGENCE - LIABILITY OF BENEFICIARY, TRANSFEREE, BANK AND ITS OFFICERS - APPLICABILITY OF RULE 9 ORDER 1 CPC - Held, the liability of the beneficiary and the transferee is for committing fraud in not supplying the goods and fraudulently encashing the letter of credit. The liability of the bank is for negligence in not ensuring that the documents furnished were in order as per the additional conditions imposed by the beneficiary's bank while transferring the letter of credit. The suit against the beneficiary, the transferee and the bank is not bad for non-joinder of necessary parties.
Fact of the Case:
The plaintiff, a Saudi Arabian company, placed two orders with the defendant No.1, an Indian company, for the supply of MS Rounds. The defendant No.1 opened a transferable letter of credit in favor of itself with the plaintiff's bank. The defendant No.1 transferred the letter of credit to the defendant No.6, another Indian company. The defendant No.6 fraudulently obtained payment under the letter of credit by submitting forged documents. The plaintiff filed a suit against the defendant No.1, its directors, the defendant No.6, its directors, the bank, and its officers for fraud, negligence, and breach of contract.
Finding of the Court:
The court held that the defendant No.1 and its directors were not liable for the fraud committed by the defendant No.6 and its directors. The court also held that the bank was liable for negligence in not ensuring that the documents furnished were in order as per the additional conditions imposed by the beneficiary's bank while transferring the letter of credit. The court further held that the suit against the defendant No.1, the defendant No.6, and the bank was not bad for non-joinder of necessary parties.
Issues: 1. Whether the defendant No.1 and its directors were liable for the fraud committed by the defendant No.6 and its directors? 2. Whether the bank was liable for negligence in not ensuring that the documents furnished were in order as per the additional conditions imposed by the beneficiary's bank while transferring the letter of credit? 3. Whether the suit against the defendant No.1, the defendant No.6, and the bank was bad for non-joinder of necessary parties?
Ratio Decidendi: 1. The defendant No.1 and its directors were not liable for the fraud committed by the defendant No.6 and its directors because there was no evidence that they were involved in the fraud. 2. The bank was liable for negligence in not ensuring that the documents furnished were in order as per the additional conditions imposed by the beneficiary's bank while transferring the letter of credit. The bank's officers had noted on the covering letter that the documents were deficient, but they had still processed the payment. 3. The suit against the defendant No.1, the defendant No.6, and the bank was not bad for non-joinder of necessary parties because the plaintiff had made out a case against each of the defendants.
Final Decision: The court allowed the appeal filed by the defendant No.1 and its directors and dismissed the suit against them. The court partially allowed the appeal filed by the defendant No.6 and its directors and modified the decree by reducing the amount of interest awarded. The court dismissed the appeal filed by the bank.
Pradeep Nandrajog, J.
1. We would be constrained to pen a slightly lengthy judgment for the reason the impugned judgment dated February 13, 1998, spanning 136 pages is wandering in the woods and the exit route is not clearly discernible.
2. We begin by noting that the plaintiff, „M/s.Al Mustaneer Establishment for Trade, a company registered in Saudi Arabia, filed a suit in which 19 defendants were impleaded; being, „Varuna Overseas Pvt. Ltd.(formerly known as Dhar General Overseas Pvt. Ltd.) as defendant No.1; Ms.Suman Bansi Dhar, Mr.Ajay Shridhar Shriram, Mr.B.P.Khandelwal and Mr.Prem Prakash, impleaded as defendants No.2 to 4 and 19 respectively, statedly the Directors of defendant No.1; Sh.Ravi Shankar Upadhaya, the Export Executive of defendant No.1, impleaded as defendant No.5; M/s.Kupal Material and Metals Pvt. Ltd., impleaded as defendant No.6 and Sh.Kuldeep Singh Sahni, Sh.Tejinder Singh Sahni, Sh.Kirti H.Shah, Ms.Surender Kaur, Ms.Ravinder Kaur, Ms.Daljeet Kaur, Ms.Harbans Kaur and Mrs.Ram Kaur, statedly the Directors of defendant No.6, and hence impleaded as defendants No.7 to 14 respectively; Amphora Marine Consultants Pvt. Ltd. as defendant No.15 and Captain Bharve, the Principal Officer of defendant No.15 being impleaded as defendant No.16. Syndicate Bank, Branch Connaught Place and Syndicate Bank having its registered office at Karnataka being impleaded as defendants No.17 & 18.
3. It was pleaded in the plaint that the description of the defendants was as afore-noted in para 2 and that on November 22, 1978 two orders bearing No.548/1978 & 549/1978 were placed by the plaintiff upon defendant No.1 through its agent in Saudi Arabia i.e. M/s.United Arab Agencies for supply of 1000 Metric Tonnes (under each order) of MS Rounds. The value of each indent was US$340000 & the shipment was to be made within 90 days, to be delivered at Hoddeidah Port, and for which payment was to be made through a Letter of Credit to be opened by the plaintiff in the name of defendant No.1. That vide telex dated November 21, 1978, through its agent United Arab Agencies, confirming the orders, defendant No.1 requested the Letter of Credit to be made transferable and accordingly the plaintiff caused a transferable Letter of Credit to be opened on November 23, 1978 in favour of defendant No.1 through plaintiffs banker „The Al Saudi Al Francis Bank on the terms stated in the Letter of Credit. The Letter of Credit was pleaded to be valid till March 03, 1979 and goods not being dispatched, it was pleaded that on behalf of defendant No.1, defendant No.5 approached the plaintiff and sent a telex that the Letter of Credit should be amended to make it divisible; with assurance that the shipment would be effected in February 1979. The agent of defendant No.1 assured plaintiff that the goods were at Bombay Port and on March 5, 1979, on behalf of defendant No.1, defendant No.5 sent a telex that 500 MT of MS Round Bars were being shipped on the same day. A few days later, defendant No.5 arrived in Jeddah and requested that the Letter of Credit be extended upon the assurance that the goods were in the process of being loaded on a ship. Plaintiff agreed to extend the Letter of Credit by three months upon defendant No.1 furnishing performance guarantee from a scheduled bank in value equivalent to 10% of the value of the goods. The plaintiff received a bank guarantee issued by defendant No.6, acceptance whereof was declined by the plaintiff as it had no concern with defendant No.6, but upon assurance from defendant No.5 and upon him swearing an affidavit guaranteeing delivery of goods by defendant No.1, the guarantee was accepted and at the asking of the plaintiff the issuing bank extended the validity of the Letter of Credit up to May 25, 1979.
4. Pleading as aforesaid up to paragraph 6 of the plaint, further story narrated in the plaint, would be preferred by us to be told through the mouth of the plaintiff, as pleaded in paragraphs 7, 8, and two
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